Disadvantages of Debt Settlement Companies
Using a debt settlement company has its perils because the industry is mostly unregulated. Many people who use these services are unaware that there are better alternatives such as bankruptcy. These services may provide a temporary fix, but the amount of money you end up paying is often substantially larger than other alternatives such as bankruptcy.
Some of the potential problems with these companies which advertise aggressively are:
1. You must come up with and pay over time large sums of money to actually settle your debts.
2. Some debt-settlement companies are scams. After they receive your money, they vanish or lack the expertise necessary to negotiate effective deals.
3. Your bills do not get paid on time damaging your credit score anyway.
4. You can still be contacted by harassing debt collectors or be sued resulting in potential wage garnishment, judgment liens, and levy on your assets. Lawsuits are sometimes triggered by the hiring of a debt settlement service.
5. The Internal Revenue Service may be able to tax you on the difference between what you owe and the amount you pay in a settlement. This is not the case for debts discharged in bankruptcy.
6. The fees for debt settlement are high, sometimes 14% to 18% of the total debt you want to settle which are paid on top of what you also pay to creditors to settle your debts.
7. Settlements take an average of two years to be resolved increasing the likelihood of interim lawsuits against you.